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Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors

Author

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  • Andrea Mantovani

    () (Department of Economics, University of Bologna, 40125 Bologna, Italy; and Barcelona Institute of Economics, 08034 Barcelona, Spain)

  • Francisco Ruiz-Aliseda

    () (Department of Economics, Ecole Polytechnique, 91128 Palaiseau, France)

Abstract

We provide a rationale for the recent burst in the amount of collaborative activities among firms selling complementary products, highlighting factors that may result in a lower profitability for such firms overall. To this end, we examine a game-theoretic model in which firms can collaborate with producers of complementary goods to enhance the quality of the systems formed by their components. Collaboration makes it cheaper to enhance such quality, so building innovation ecosystems results in firms investing more than if collaboration were impossible. In markets reaching saturation, firms are trapped in a prisoner’s dilemma: the greater investments create more value, but this does not translate into greater value capture because the value created relative to competitors does not change. We also examine the (dis)advantages for a firm of having open or closed interfaces for the component it sells when the environment is competitive as well as how this is related to the endogenous emergence of two-sided platforms. This paper was accepted by Bruno Cassiman, business strategy.

Suggested Citation

  • Andrea Mantovani & Francisco Ruiz-Aliseda, 2016. "Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors," Management Science, INFORMS, vol. 62(2), pages 534-549, February.
  • Handle: RePEc:inm:ormnsc:v:62:y:2016:i:2:p:534-549
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    File URL: http://dx.doi.org/10.1287/mnsc.2014.2140
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    References listed on IDEAS

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    1. Denicolo, Vincenzo, 2000. "Compatibility and Bundling with Generalist and Specialist Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 48(2), pages 177-188, June.
    2. Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-123, March.
    3. Andrea Mantovani & Francisco Ruiz-Aliseda, 2016. "Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors," Management Science, INFORMS, vol. 62(2), pages 534-549, February.
    4. Francis Bloch, 1995. "Endogenous Structures of Association in Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 537-556, Autumn.
    5. Annabelle Gawer & Rebecca Henderson, 2007. "Platform Owner Entry and Innovation in Complementary Markets: Evidence from Intel," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(1), pages 1-34, March.
    6. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
    7. Jay Pil Choi, 2008. "MERGERS WITH BUNDLING IN COMPLEMENTARY MARKETS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 553-577, September.
    8. Yongmin Chen & Michael H. Riordan, 2007. "Price and Variety in the Spokes Model," Economic Journal, Royal Economic Society, vol. 117(522), pages 897-921, July.
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    Citations

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    Cited by:

    1. Andrea Mantovani & Francisco Ruiz-Aliseda, 2016. "Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors," Management Science, INFORMS, vol. 62(2), pages 534-549, February.
    2. Halmenschlager, Christine & Mantovani, Andrea, 2017. "On the private and social desirability of mixed bundling in complementary markets with cost savings," Information Economics and Policy, Elsevier, vol. 39(C), pages 45-59.
    3. Emilie Dargaud & Carlo Reggiani, 2015. "On The Price Effects Of Horizontal Mergers: A Theoretical Interpretation," Bulletin of Economic Research, Wiley Blackwell, vol. 67(3), pages 236-255, July.
    4. Carlo Reggiani, 2014. "Spatial Price Discrimination in the Spokes Model," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(3), pages 628-649, September.
    5. repec:eee:tefoso:v:128:y:2018:i:c:p:133-143 is not listed on IDEAS
    6. Carlo Reggiani, "undated". "Optimal Differentiation and Spatial Competition: The Spokes Model with Product Delivery," Discussion Papers 09/13, Department of Economics, University of York.
    7. Andrea Mantovani & Claudio Piga & Carlo Reggiani, 2017. "The dynamics of online hotel prices and the EU Booking.com case," Working Papers 17-04, NET Institute.

    More about this item

    Keywords

    systems competition; complementary products; interoperability; coopetition; exclusivity; endogenous two-sided platform;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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